Saturday, May 23, 2009

It seems that whenever a court ruling comes out in ECUSA's favor, or that could put the orthodox into an unfavorable light, all of the Episcopal/Anglican blogs on the left have news about the ruling up on their sites within a day, if not within hours. Just as a little experiment, I have delayed putting up this post about a recent court ruling in the San Joaquin litigation that went mostly against ECUSA, Bishop Lamb, and the group he leads in order to see whether any of those same blogs would discuss it. Well, there has been not a word, even on the group's official Website---and not even about the part of the ruling that was in their favor, either (see below for details: this blog may be ponderous to some, but we do cover both the favorable and the unfavorable).

No, the ruling is not on the matters that were argued May 5; the court still has the plaintiffs' motion for summary adjudication, and their demurrers to Bishop Schofield's cross-complaint against them, under consideration. And that may be a sign that the court is rethinking its tentative ruling on those matters, as I explained in the post just linked:

There are normally two kinds of outcome to this kind of oral argument after a tentative ruling. In the first, the judge listens politely to all the parties, lets them have their say, and then issues an order affirming his tentative ruling a day or so later---he scarcely changes a thing.

In the second type of outcome, the points made at the oral argument cause the judge to revise and rethink his ruling, and so he takes the time he needs to do so, whether it is one week or two, or even a month or more. (His only deadline is that he has to rule on the matter within 90 days, or else he is barred from collecting a paycheck until he does. What if similar requirements applied to our legislators and executives?) I am hopeful, based on what I heard, that the second type of outcome will be closer to what happens here.

The ruling I am now talking about came following the oral arguments before Judge Corona one week after those on the matters he still has under consideration. On May 12, Judge Corona heard the parties on the issue of whether or not ECUSA's/Bishop Lamb's demand that Bishop Schofield's attorneys return the retainer that had been paid to them stated a claim upon which a court could grant relief. Following the oral arguments, Judge Corona illustrated my first method of decision-making described in the quote above: he signed an order affirming his tentative ruling that same day, and gave it to the clerk for service on the parties. (It took a while for the ruling to arrive, but each side has known about it for almost a week now. And that is how I have been able to run my little experiment in newsworthiness.)

To understand what Judge Corona decided, and its significance for the overall case, you will need some background. Last December, I reported on a move by the Episcopal Church (USA), in conjunction with its co-plaintiffs Bishop Lamb and the group claiming to be the "Diocese of San Joaquin," to demand the return of a retainer for legal services paid in December 2007 by the then-Diocese of San Joaquin and its bishop, the Rt. Rev. John-David Schofield, to their law firm. The Diocesan Council authorized the payment of $500,000 as an advance against the legal fees and expenses to be incurred in the event that any litigation should be brought against the Bishop and his Diocese, and the money was deposited into the law firm's trust account. (It could thus always be returned if no litigation was filed.) When ECUSA and Bishop Lamb did bring their lawsuit in April 2008, the legal fees incurred in defending against it were paid from the money held in the trust account as those services were performed and billed.

As part of their lawsuit, the plaintiffs also named Merrill Lynch, the investment firm where the Diocese and Bishop Schofield kept their funds. Merrill Lynch froze all the funds pending the outcome of the lawsuit---a move which helped Bishop Lamb, because ECUSA was financing his litigation, while Bishop Schofield's Diocese needed their funds for their day-to-day operations. The Diocese showed a well-informed prudence in setting aside funds for the litigation expenses it anticipated ECUSA would force it to incur. ECUSA and Bishop Lamb in turn sought to exploit that exercise of business judgment for their own ends by the unusual device of trying to drive a wedge between their opponents and the latter's own attorneys. (To do so, they had to take the strange position in their papers that Bishop Lamb and his "Episcopal Diocese" were actually the "clients" of Bishop Schofield's law firm.)

Merrill Lynch had turned over the records for the 2007 diocesean accounts to Bishop Lamb and ECUSA, and as a result they discovered the retainer payment made in December. When they saw that their strategy of cutting off the Diocese's funds had been thwarted, they immediately wrote a letter to the Diocese's law firm, Wild, Carter & Tipton of Fresno, California, in which they demanded that the money be handed over to Bishop Lamb's group, on the ground that that group was now the rightful "Diocese of San Joaquin", and had succeeded to all of the assets of what they claimed was the "former" Diocese.

(Never mind that they could not explain how, if a diocese could never leave the national Church, as per their legal theory, the diocese whose money and assets they wanted could all of a sudden become a "former" one, and they could become the "current" one, without the first in fact having left the Church. As I have had occasion several times to point out, those who form what could be called the contra-Pauline wing of the Episcopal Church (USA)---i.e., the ones who are suing all the departed dioceses and parishes---have not exhibited any signs that they respect, or follow, the laws of logic, let alone the Epistle of St. Paul to the Corinthians.)

When Wild, Carter & Tipton failed to hand over their client's money as demanded, ECUSA, Bishop Lamb and the group calling itself the "Diocese of San Joaquin" amended their complaint a third time to add the law firm as a defendant. (In another interesting procedural wrinkle, the amendment of the complaint came after they had already filed a motion for a summary adjudication in their favor on the first cause of action in the previous complaint. Normally, the filing of an amended complaint supersedes, and replaces for all purposes, the previous version. The court has not yet issued a final ruling on the motion for summary adjudication, and no matter how it comes out, nothing in the ruling can be binding on Wild, Carter & Tipton. Whether it will have any ultimate effect in the case as a whole remains to be seen.)

The law firm of Wild, Carter & Tipton had to hire their own attorneys to defend them, and they chose Payne & Fears, the law firm that has defended the parish of St. James in Newport Beach against the suits brought by ECUSA and by the Diocese of Los Angeles, and that has also represented a number of other California churches and parishes. Payne & Fears demurred to the claims made in the third amended complaint by Bishop Lamb et al. against Wild Carter & Tipton. In California procedure, a demurrer challenges the legal sufficiency of a pleading (usually a complaint). It says, in effect: "Even if everything alleged in this pleading is taken to be true, the facts as alleged are inadequate to make out any claim upon which the court can grant relief. Therefore, the court should require the pleader to amend the pleading to state facts that will make out such a claim. And if the pleader cannot do so, the pleading should be stricken."

The third amended complaint made three different claims against the law firm of Wild, Carter & Tipton. The first was a claim for declaratory relief that the transfer of money was wrongful, and that the plaintiffs were entitled to have the money returned to them, since they were now the "client" who had the right to the funds. The second was a claim that Wild, Carter & Tipton had "converted" funds belonging to the plaintiffs---i.e., that it had wrongfully taken possession of their money, and refused to hand it over. And the third claim was that the December 2007 transfer of the money amounted to what the law calls a "fraudulent conveyance"---a transfer of an asset by one facing a lawsuit for the purpose of placing the asset out of the reach of creditors, in the event they obtain a judgment.

The Fresno Superior Court issued a tentative ruling on the demurrers to these claims on May 11, 2009. The ruling is still available as a link for "May 12 tentative rulings" at this website of the Court. (The link is to a 31-page .pdf download of all the rulings for that date; you have to scroll down to page 22 for the ruling on the demurrers in the San Joaquin case.) It is a very clear statement of the issues and arguments made, and I quote from it. First the paragraph summarizing the ruling itself:

Tentative Ruling:

To sustain the demurrer to the second and fourth causes of action with leave to amend and to overrule the demurrer to the sixth cause of action. A Fourth Amended Complaint shall be filed and served within 10 days of the service of this order. New allegations shall be in boldface type.

Next, the court gives this general explanation of a demurrer, and how it proceeds with regard to them:

Explanation:

A demurrer is made under Code of Civil Procedure section 430.10, and is used to test the legal sufficiency of the complaint or other pleading. (Weil & Brown, Civil Procedure Before Trial (Rutter Group 2008) “Attacking the Pleadings” § 7:5.) The demurrer admits the truth all material facts properly pleaded, but not mere contentions, deductions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

On general demurrer, the court determines if the essential facts of any valid cause of action have been stated. (Weil & Brown, supra, § 7:39; Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572; Code Civ. Proc. § 430.10(e).) Leave to amend should be granted if there is a reasonable possibility that plaintiff could state a cause of action. (Blank v. Kirwan, supra, 39 Cal.3d at 318.)

Having thus set the stage, the Court then takes up its treatment of the specific claims in the complaint. First, with regard to the claim for declaratory relief, the court explains why the plaintiffs' allegations are insufficient to get around what is known as the "agent's immunity rule":

Second Cause of Action – Declaratory Relief

Wild Carter contends that the “agent’s immunity rule precludes liability on this cause of action. The rule is that “duly acting agents and employees cannot be held liable for conspiring with their own principals … .” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, 512.)

Wild Carter contends that the declaratory relief cause of action is premised on the implied agreement of Wild Carter and other defendants to wrongfully withhold the retainer amount that allegedly belongs to plaintiffs. In the cause of action for declaratory relief the payment of the retainer fee occurred with the knowledge and participation of Wild Carter and the payment was an effort to deplete the accounts belonging to plaintiff (Complaint ¶ 110.) . . .

[As] Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 834 recognized, “[c]ases have interpreted the ‘financial advantage’ exception to the agent's immunity rule to mean a personal advantage or gain that is over and above ordinary professional fees earned as compensation for performance of the agency.” Berg & Berg involved a statutory provision (Civil Code section 1714.10) with exceptions that allowed a conspiracy claim against an attorney; the exceptions mirrored those carved out from the agent's immunity rule. The court held the term “‘in furtherance of the attorney's financial gain’” meant that “through the conspiracy, the attorney derived economic advantage over and above monetary compensation received in exchange for professional services actually rendered on behalf of a client.” (Id. at pp. 824, 836.) Even allegations of excessive billing for the services rendered by the attorney did not satisfy the financial gain requirement of the statute's exception. (Id. at pp. 835–836.)

The “agent's immunity rule” does not apply when the agents are acting “as individuals for their individual advantage.” (See Applied Equipment, supra, 7 Cal.4th at p. 512, fn. 4; Doctors' Co. v. Superior Court (1989) 49 Cal.3d 39, 47 [the rule “does not preclude the subjection of agents to conspiracy liability for conduct which the agents carry out ‘as individuals for their individual advantage’ and not solely on behalf of the principal”]; 1-800 Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568, 592 [“[a]n exception to the agent's immunity, for conduct undertaken for personal advantage, is consistent with the immunity rule, because pursuit of a personal interest renders the actor more than merely the agent of another”].)

Here, all that is pled is that Wild Carter knowingly participated in the transfer of funds from its client to its trust account as a retainer. This only implicates activity taken on behalf of the client and, as set forth above receipt of monetary compensation is not enough “personal advantage” sufficient to vitiate the agent’s immunity rule. However, it is conceivable that plaintiffs could plead that Wild Carter was acting in furtherance of its own individual advantage in accepting the retainer.

So the Court finds the allegations as pled insufficient to state a claim for relief, but allows ECUSA/Bishop Lamb an opportunity to amend their complaint to state additional facts showing the particular "financial advantage" which Wild, Carter & Tipton would have gained from receiving a retainer to deposit in their trust account. (Remember that law firms are required to hold money which belongs to clients in a separate, legally protected attorney-client trust account. The moneys do not belong to the law firm, which has no right to draw on them until it has performed legal services and given the client an itemized statement of those services which the client does not dispute. And then all it can draw out is the specific amount required to pay the statement. Thus retainers of this type are not "earned" until the services have been rendered, billed and accepted.)

The Court then takes up the claim of conversion, and makes short work of it---again citing the rule that an agent is immune from liability when simply carrying out actions on behalf of his principal:

Third Cause of Action – Conversion

Conversion is generally described as the wrongful exercise of dominion over the personal property of another. (Gruber v. Pacific States Sav. & Loan Co. (1939) 13 Cal.2d 144, 148.) The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages. (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066.)

Again, the tort committed is merely the acceptance of the retainer. (Complaint ¶ 124 [incorporating earlier allegations].) The agent’s immunity rule would apply unless plaintiffs can plead Wild Carter was acting in furtherance of its individual advantage in committing the tort.

Finally, the Court takes up the claim that the transfer was a "fraudulent conveyance", and here finds that the plaintiffs' allegations are sufficient to meet the law's requirements:

Sixth Cause of Action -- Fraudulent Conveyance

The cause of action based on the Uniform Fraudulent Transfer Act (Civ. Code § 3439, et seq., UFTA or Act) is different. Sections 3439.04 and 3439.05 of the Act set forth the situations in which a transfer may be deemed fraudulent. For example, a transfer made with the actual intent to hinder, delay, or defraud creditors is fraudulent. (Civ. Code § 3439.04, subd. (a)(1).) Under section 3439.04, subdivisions (a)(1) and (a)(2), it does not matter whether the creditor's claim arose before or after the transfer was made.

A creditor's remedies may include the voiding of a fraudulent transfer or an attachment against the asset. (Civ. Code § 3439.07.) "[A] fraudulent conveyance claim requesting relief pursuant to Civil Code section 3439.07, subdivision (a)(1), if successful, may result in the voiding of a transfer of title of specific real property. By definition, the voiding of a transfer of real property will affect title to or possession of real property." (Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 649.) The transferee must be a party to the fraudulent conveyance action. (See Heffernan v. Bennett & Armour (1952) 110 Cal.App.2d 564, 586; see also Liuzza v. Bell (1940) 40 Cal.App. 2d 417, 424.)

Every person has a duty not to knowingly participate in a fraudulent transfer, including the transferee. A transferee who takes property "in good faith and for reasonably equivalent value" has met that duty, and, therefore, may prevent the voiding of the transfer. Plaintiffs have alleged that Wild Carter knowingly participated in the fraudulent transfer and that Wild Carter did not provide reasonably equivalent value in exchange for the $500,000. (Complaint ¶¶ 143-144.) Plaintiffs have pled that the transfer was intended to harm the interests of the plaintiffs. (Complaint ¶ 143.) This adequately invokes that Wild Carter was acting in its own motivation to harm the plaintiffs in accepting the money. The retainer was not equivalent to the value owed, it was intended to harm the plaintiffs by hiding assets, and Wild Carter knowingly participated in this scheme. The complaint need not plead Wild Carter’s motivation in its individual advantage, merely that it had one, causing harm to plaintiffs.

Remember that on a demurrer, the court must take as true all the facts as pled by the plaintiffs. Thus Bishop Lamb and ECUSA pled that the transfer of money was specifically intended to harm them, and that the defendants did not receive "reasonably equivalent value" in exchange. (Never mind that the transfer was occasioned by the threat, more than a year before it occurred, made by ECUSA's presiding bishop to Bishop Schofield in these words: "None of us has received the property held by the Church today to use as we will. We have received it as stewards, for those who enjoy it today and those who will be blessed by the ministry its use will permit in the future. Our forebears did not build churches or give memorials with the intent that they be removed from the Episcopal Church.") But pleading versions of the facts is different from proving them. To prevail on these charges at trial, the plaintiffs will have to persuade a jury that the evidence supporting them is more convincing than the evidence that the defendants were simply paying their law firm to provide legal services in response to the plaintiffs' carrying out what they warned they would do.

In the heavy-handed fashion that has now become customary when ECUSA's lawyers are involved, the plaintiffs had tried to stop Payne & Fears from so much as even interposing any demurrers to their third amended complaint. They claimed that when the Court ruled that they could amend their complaint to add Wild, Carter & Tipton as a defendant, it had already held that their proposed complaint was sufficient, as a matter of law. So they threatened to move for sanctions and attorneys' fees against Payne & Fears, and against Wild Carter & Tipton as well, if they did not withdraw their demurrers.

In order to do so, the plaintiffs' attorneys were required to disclose in detail the amounts and the services performed which they asserted their clients were forced to incur as a result of the defendants' temerity in opposing their amended complaint. As a result, the defendants were given a glimpse into the kind of charges the Episcopal Church (USA) is incurring from its litigation through the law firm of Goodwin Procter. In their motion papers, the plaintiffs stated: "As sanctions, plaintiffs seek their legal fees and costs in the amount of $10,736." One of their attorneys from the Washington, D.C. office of the Goodwin Procter firm, Adam Chud, explained this amount as follows:

4. I took primary responsibility for preparing the instant Motion for Sanctions and supporting papers. My standard hourly rate for Episcopal Church litigation is $488 per hour. I spent 7 hours preparing these papers, for a total cost of$3,416.

5. I estimate that it will take me approximately 5 hours to review any opposition that Wild Carter may file to this motion for sanctions, prepare a reply thereto, and attend a hearing on the motion by [telephone], at a total cost of $2,440.

6. The total cost to plaintiffs in connection with the motion for sanctions is thereforeexpected to be $5,856.

7. Mr. Jeffrey Skinner of my office, who is also counsel for The Episcopal Church in this matter, is taking primary responsibility for preparing the opposition to the demurrer. His standard hourly rate for Episcopal Church litigation is $370 per hour. I estimate that it will take 10 hours for Mr. Skinner to prepare the opposition to the demurrer, for a total cost of $3,770.

8. If Mr. Skinner is required to prepare for and attend a hearing on Wild Carter's demurrer and attend the hearing by [telephone], I estimate that Mr. Skinner will spend an additional 3 hours, for a total cost of$1,110.

9. The total cost to plaintiffs in connection with Wild Carter's demurrer is therefore expected to be $4,880.

10. The grand total of plaintiffs' costs in connection with Wild Carter's demurrer and this motion for sanctions is expected to be $10,736.

The plaintiffs' attorneys were not finished, however, with their request for sanctions---they also added this footnote to their memorandum written in support of their proposed motion:

The Court should also exercise its inherent power to sanction Wild Carter and its counsel for misconduct under CCP §§ 128, 128.5. An appropriate sanction (in addition to payment of plaintiffs' legal fees) would be a fine payable to the Court, in an amount that the Court deems appropriate.

As you can see from what took place, neither Wild Carter nor Payne & Fears was deterred by these threats. They went forward with the scheduled hearing on their demurrers to the third amended complaint. Their belief that they had good reasons for doing so was upheld by the Court. It dealt with the plaintiffs' claim that such action was sanctionable at the end of its tentative ruling:

Plaintiffs maintain that the court’s ruling on the motion for leave to amend is dispositive on the issue as to whether the Third Amended Complaint states a case. It is not. All the motion for leave to amend decided was whether plaintiff needed to comply with Civil Code section 1714.10, the gate-keeping statute on actions against attorneys and their clients for conspiracy. The court determined that the complaint was good against a 1714.10 challenge on the motion to amend. It did not consider the agent’s immunity rule in making this determination.

Thus, plaintiffs’ argument that the complaint adequately pleads the various causes of action is without moment, as the agent’s immunity rule is a complete defense to even a properly pleaded cause of action. Moreover, plaintiffs’ analysis of section 1714.10 is misplaced, the agent’s immunity rule and section 1714.10, which similar in some respects, are not equivalent.

Those two paragraphs accordingly took care of the threat of sanctions. (Whether ECUSA was still asked to pay for the costs of drafting the motion for sanctions is a matter between it and its attorneys.)

On May 18, the parties learned that following oral argument on May 12, the Court had adopted its tentative ruling as its final disposition of the demurrers. Thus the plaintiffs now have ten days within which to file their fourth amended complaint.

6 comments:

"It seems that whenever a court ruling comes out in the orthodox's favor, or that could put TEC into an unfavorable light, all of the Episcopal/Anglican blogs on the right have news about the ruling up on their sites within a day, if not within hours."

I like StandFirm a lot as a site, but they're the perfect example. They sometimes catch up a couple days later by posting a second-hand news story, but not always.

My point, in saying the above, is that it's a PR war as well as a legal one for both sides, I think, and not calling attention to negative news is a tried and true PR tactic.

Also, this is a complicated subject. Non-lawyer reporters and bloggers have enough of a hard time handling substantive rulings that it doesn't surprise me that they might avoid entirely pleading-centered rulings turning on legal rules like agent liability. I'm glad you posted this though -- it is an interesting subject for those trained to deal with these things.

With apologies in advance to the legion of scrupulous attorneys to whom the following comment does not apply, it appears to me that the adage birds of a feather flock together has some applicability to ECUSA. The unfolding of this litiginous debacle suggests that those leaders are very highly educated in logic, having attained the level of a doctorate in that discipline. Unfortunately, it is not a Ph.D. (Doctor of Philosophy), but an Sh.D. (Doctor of Shysterism*). This would also appear to be consistent with their having earned the degree of Sh.D. (Theology) suggested by not a few of their comments related to that discipline.

Ought we then to be surprised when they engage attorneys apparently willing to so misinterpret the law as is evidenced by the claim rebuffed in this case? I think not, and my opinion of their legal representatives is not flattered thereby. [As an aside, one wonders if a charitable interpretation toward ECUSA with respect to this particular filing would not require one to infer the possibility of barratry on the part of ECUSA's attorneys in this case.]

On a wholly separate note, in reply to DavidH's comments that "this is a complicated subject" and that "it is an interesting subject for those trained to deal with these things," I think he does many of your readers a disservice in thinking that non-lawyers are somehow nearly incapable of understanding legal arguments. This is particularly untrue for those of us who have your clearly written analyses as a guide to our understanding.

Pax et bonum,Keith Töpfer_______________

* The reader should note that the term shyster, although frequently used with respect to attorneys, actually refers to "an unscrupulous practitioner." And it is in this more general sense that I here use the term.

This tentative ruling says, in effect, these agencies are not to be held liable for the misdeeds of Schofield, et. al.. This is not a victory or anything like it for those alienating property from the Episcopal Church.

When will this end? Before each decision has come down against the dissidents, Fr. Haley and others have said, "Well, the other decisions were really about something else -- when this decision comes down, we will be vindicated."

Vindication has not come - the courts have been consistent in their denial of the dissidents' claims. So when will the message get through? This holding out for the slimmest possible hope (which will certainly be overturned on appeal) is just wasting money.

1) Although I quote from the court's tentative ruling, it is no longer tentative---as I mention toward the end of the post, the court adopted the tentative ruling as its final ruling immediately after hearing the arguments.

2) What I have been pointing out in my posts is that this case (the San Joaquin case) is not like the other California cases to be decided thus far: the San Joaquin case involves the right of a member of a voluntary association of dioceses to vote to leave that association, while the other cases have all been about parishes voting to leave their dioceses.

3) There is no Episcopal constitutional or canonical provision that makes the national Church the owner of a diocese's own property. So it is wrong to say that the San Joaquin case is all about "stealing Church property". It is not. It is about, as I say, the right of a member of an association to leave it. The member owned what it owned when it joined, and all during the time it was a member. So why should it be forced to give up what it owns when it decides it is time to leave?

4) Since ECUSA and Bishop Lamb are trying to claim ownership of properties they could never fill with communicants, let alone use, who is wasting their money here?

The Episcopal Diocese of San Joaquin is often quite slow to post news on the on-going litigation since they have no paid press officer. They made no statement on the tentative judgment until AFTER the May 6 arguments and in that statement their lawyer said no further comment would be made until they received the final judgment. Thus any expectation that they should have put up a statement on the May 12 hearing was unrealistic and nothing should be inferred from their silence.

I won't belabor the point, Dr. Gundersen. I note only that the May 12 ruling is now the court's final ruling, and that the parties have all known about it since May 18.

What will be more interesting is the new and additional facts plaintiffs will add to their fourth amended complaint to meet the court's ruling, if they decide to amend. We shall see in a few more days whether they elect to do so.

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